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By Jason Stipp | 09-09-2010 09:44 AM

The Critical Balancing Act of Trade

Morningstar's Bob Johnson on the benefits of healthy trade and the ultimate effects of imbalances on the U.S. job market and economy.

Jason Stipp: I'm Jason Stipp for Morningstar. The July balance of trade numbers, which came out on Thursday, showed a nice contraction in the trade deficit from June. This number actually has quite a big impact on the U.S. economy, on GDP specifically.

Here with me to talk about the numbers, the implications, and the trends that we've been seeing in balance of trade is Morningstar's Bob Johnson, director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: First question for you. We did see a contraction in the deficit between June and July, but we still had $42.8 billion trade deficit, meaning that we imported that much more than we exported. Sounds like a big number. But can you put that in the context? Where is that number in the trend that we've been seeing?

Johnson: Over the long run, in the depth of the recession, and when you are in the middle of a recession, that tends to shrink deficit because nobody is buying anything, and maybe we were in the mid-$20 billions for one month. And maybe when things were really booming and commodities were way high in the 2007-08 timeframe, we may as gotten as high as over $60 billion in the given month.

So now kind of back at $42 billion, we're kind of between the two extremes. And it looked like for a while the June number was so bad that it looked like maybe we were headed back to that $60 billion, and now it looks like we've backed off of that number, and we're kind of more back in the middle again.

Stipp: So one of the things that really helps the deficit to shrink in July was the airplane exports. So, it seems that potentially what we're sending out to other countries are bigger ticket items, but what are the major trends that you're seeing in what we're sending out versus what we're bringing in?

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